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NATIONAL IRANIAN OIL CO. v. COMMERCIAL UNION INS.

August 14, 1973

NATIONAL IRANIAN OIL COMPANY, Plaintiff,
v.
COMMERCIAL UNION INSURANCE COMPANY OF NEW YORK et al., Defendants


Kevin Thomas Duffy, District Judge.


The opinion of the court was delivered by: DUFFY

OPINION AND ORDER

KEVIN THOMAS DUFFY, District Judge.

 This case arises out of two 1966 contracts* between the plaintiff National Iranian Oil Corp. (hereinafter "NIOC") and Torrance Machinery and Engineering, Inc. (hereinafter "TME"), a California corporation which was the predecessor to Kencol, Inc. The contract provided for the construction and management of two pipe mills in Iran. During the course of performance, several disputes arose, and after unsuccessful attempts to settle them, plaintiff brought this suit for breach of contract and fraud, alleging $24,598,000 damages.

 Originally the suit was brought only against the Commercial Union Insurance Company (hereinafter "CUIC") for failure to pay the performance bond which accompanied the contract, but the plaintiff was later permitted to amend its complaint to add the other defendants and causes of action. Defendant P & F Industries is the parent corporation of which TME was, and Kencol, Inc. is, a wholly owned subsidiary. Defendant Sidney Horowitz is Chairman of the Board of P & F, and at the time the controversy arose was also President of P & F and a Vice-President of TME. As against the added defendants the complaint alleges that they (1) breached the contract in several respects; (2) imposed upon the plaintiff a performance bond which they knew would be difficult to collect, using the pressure of time to force plaintiff's acceptance; (3) transferred the assets of Kencol, Inc. to a limited partnership with the intent and effect of defrauding plaintiff; and (4) P & F and Horowitz ignored the corporate entity of TME and bilked it of assets to defraud creditors including the plaintiff.

 Before the complaint was amended, defendant CUIC moved to transfer the case to the Central District of California pursuant to 28 U.S.C. § 1404(a). By stipulation, this motion was withdrawn on March 13, 1972, without prejudice to its being renewed following service upon the defendants of the amended complaint. On July 10, 1972, the defendants other than CUIC moved (1) to dismiss the amended complaint as against Kencol, Inc. for lack of personal jurisdiction; (2) to dismiss the complaint as against all defendants other than CUIC for improper venue, or in the alternative; (3) to transfer the action to the Central District of California. NIOC responded to this motion by discontinuing the action as against Kencol, Inc. on August 23, 1972, and by opposing the transfer. Since all of the defendants other than Kencol, Inc. are residents of New York, the discontinuance rendered moot both motions to dismiss, leaving only the motion to transfer. Before this motion had been decided, the defendants other than CUIC moved on October 10, 1972, to dismiss the complaint for failure to join an indispensable party, i.e., Kencol, Inc. Thus the motions now before the Court are the motion to dismiss, pursuant to Rule 19, Fed. R. Civ. P., for failure to join an indispensable party and the motion to transfer this action to California, pursuant to 28 U.S.C. § 1404(a), for the convenience of parties and witnesses.

 Rule 19(a) sets forth the considerations which govern the question whether a party is to be regarded as necessary and should therefore be joined:

 
"(a) Persons to be joined if feasible. A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest."

 In this case, Kencol, Inc. claims an interest in defending against the allegations that it breached the 1966 contract. If these issues are determined in its absence, and CUIC and P & F or Horowitz are held liable for the breach, there is a real risk that an inconsistent result in a subsequent suit brought by one of them against Kencol, Inc. would prevent their being indemnified. *fn1" Under these circumstances Kencol should be joined if it is subject to service of process and if its joinder will not deprive the Court of subject matter jurisdiction.

 Since jurisdiction in this case is based on diversity of citizenship between an Iranian plaintiff and New York defendants, it will not be affected by the joinder of a California defendant. The question whether Kencol, Inc. is subject to service of process is more difficult to resolve, and requires a detailed examination of TME's contacts with New York.

 CPLR § 302(a) authorizes a court to exercise personal jurisdiction over a non-domiciliary as to a cause of action arising from his transaction of business in New York, either in person or through an agent. Since TME was a California corporation with no New York office, bank account, mailing address, telephone listing, salesmen or sales, its only jurisdictional contacts relevant to this case are the negotiations regarding the pipe mill contracts carried on in New York by its agents.

 Before the contracts were signed, the defendants' chief negotiators were the defendant Sidney Horowitz and Charles Babbitt, the President of TME and a Vice-President and Director of P & F. Babbitt was based in California and Horowitz in New York. Although Horowitz usually identified himself as President of P & F, he signed the contract on behalf of TME. Since P & F was not a party to the contract, it is fair to infer that Horowitz was negotiating on behalf of TME as well as P & F. *fn2"

 The negotiations commenced in early 1966, consisting first of correspondence conducted by TME through a London agent, followed by a two week visit to Iran by Babbitt in May. In June, Horowitz accompanied Babbitt on a second trip to Iran, and when Babbitt refused to continue negotiations and left, alleging bad faith on the part of NIOC, Horowitz stayed and negotiated further before returning to New York. Babbitt flew back to Iran in July for further negotiations, but again became outraged at what he perceived as bad faith on the part of NIOC and left between negotiating sessions without notice to anyone. Again Horowitz smoothed things over by sending a conciliatory cable from New York to Dr. Manushehr Eghbal, Managing Director of NIOC in Iran, explaining Babbitt's behavior and suggesting further negotiations. Subsequent telegrams between Horowitz and Eghbal resulted in a joint decision to hold a final and conclusive negotiating session in New York. Each side now claims that New York was selected to suit the convenience of the other, but this question need not be resolved for the purposes of this motion.

 The parties met in New York from August 17 to August 20. P & F and TME were represented by Horowitz, John Preston (an officer and employee of P & F and a director of TME), Robert Wymer (an employee of TME) and Ronald Del Guercio (counsel to TME). Considerable progress was made, but after four days the negotiations were adjourned to Washington, D.C., to allow NIOC's representatives to keep appointments with representatives of the Export-Import Bank. Negotiations resumed in Washington on August 24, and the contracts were signed there on August 26 and 27, 1966.

 The parties differ as to the importance of the New York negotiations. The plaintiff characterizes them as "long and extensive, often lasting until late into the evening" culminating in "agreement upon the essential terms and provisions of the design and construction contract ("Turnkey Contract"), including time of completion of each mill and quantity of pipe to be produced by each mill." (Abusaidi affidavit p. 5). The defendant emphasizes that no agreement was reached on at least eight "essential contractual terms," including time of completion and quantity of production, until the negotiations were resumed in Washington. The Court will not attempt to decide such disputed issues of fact on conflicting affidavits. Even if important terms remained undecided when the parties left New York. it is clear from the history of the ...


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